During an oral argument that spanned nearly two hours, all three judges on a panel of the U.S. Court of Appeals for the District of Columbia Circuit asked tough questions of the DOJ, which argues the more than $80 billion deal will harm competition in the pay-TV industry.

The judges repeatedly noted that the court could rule for the government only if the trial judge made obvious and serious errors in siding with AT&T.

"Our standard is clear error," said Judge Judith Rogers.

"Where is the plain error?" Judge David Sentelle asked, then later suggested to the Justice Department that there wasn't one.

Thursday's hearing came six months after a blockbuster ruling by U.S. District Judge Richard Leon allowed the merger.

The so-called vertical deal combined AT&T's wireless and pay-TV businesses -- including satellite service DirecTV -- with Time Warner's entertainment portfolio: the Warner Bros. movie studio, HBO and the Turner networks, which include TBS, TNT and CNN.

Both at trial and on appeal, the Justice Department's primary contentions focused on the Turner networks, arguing that AT&T could raise its rivals' costs by charging more for those channels once it owned them. A negotiation impasse would have a silver lining for AT&T, because any potential blackout of Turner on other pay-TV systems could lead subscribers to switch to an AT&T-owned service, the department alleged.

The appeals court, however, questioned whether the threat of a blackout of the Turner networks really was a credible threat for AT&T to make.

"If you have any empty threat of a blackout," you're not going to get very far, Judge Sentelle said.

Judge Robert Wilkins questioned whether the threat of a blackout was removed from the equation because Turner has pledged that it will submit to arbitration any programming disputes over network carriage fees.

That arbitration pledge would have a real-world impact on the marketplace and the bargaining position of the parties, the judge said.

Mr. Murray said there were too many uncertainties surrounding AT&T's arbitration offer and that it wasn't an adequate solution.

It isn't clear whether other pay-TV providers are eager or willing to arbitrate with AT&T in the event of a pricing dispute. AT&T said earlier this year that only a handful of the roughly 1,000 cable, satellite and online TV distributors had accepted that offer, which it modeled after similar agreements offered previously by Comcast Corp. when it took control of NBCUniversal in 2011.

Judge Wilkins later suggested that the trial judge may have made some errors in his 172-page decision for AT&T, but he questioned whether they were substantial enough to change the outcome or require that the case be sent back to the trial court for more proceedings.

Lawyer Peter Keisler, representing AT&T, argued the government's case against the deal fell apart during trial. And he said Turner's promise to arbitrate disputes with other pay-TV distributors takes the threat of a blackout "off the table."

An AT&T spokesman said in a statement that "distributors collectively serving more than 10 million pay-TV customers have accepted Turner's binding offer for arbitration and we expect other distributors to do the same as their contracts come up for renewal over the next several years."

A ruling is expected in the coming months. AT&T has agreed to temporary rules that would make it easier to unwind the deal if the D.C. Circuit were to reverse Judge Leon's decision. Those conditions expire on Feb. 28.

Write to Brent Kendall at brent.kendall@wsj.com and Drew FitzGerald at andrew.fitzgerald@wsj.com